Smart power 'revolution' could save UK consumers £8bn a year, says National Infrastructure Commission

The first of three reports expected before the 2016 Budget from the NIC makes a number of practical recommendations towards the creation of a "smarter" UK energy system without introducing new subsidies or substantial public spending. These include removing legal and regulatory barriers to the development of storage solutions, building additional 'interconnectors' with mainland Europe and educating consumers about the benefits of demand reduction.

The £8bn figure came from research commissioned by the NIC from Imperial College London and the University of Cambridge, and would require "sufficient operational flexibility" to be built into the system to ensure that it could cope at times of high demand or intermittent renewable generation.

Energy law expert Nick Shenken of Pinsent Masons, the law firm behind Out-Law.com, said that the issues raised by the report were "far from new".

"The regulatory position in the UK is behind the curve because it hasn't yet been adjusted to cope with the full implications of smart networks, or the likes of battery storage," he said. "For instance, batteries are treated as generating plant which has a significant impact on the regulatory charges to which they are subject and this can make the economic case for development of significant electricity storage plant more challenging to navigate."

"We also need a wider circulation of smart enabled appliances and meters, coupled with 'time of use' energy tariffs which allow for the response to price signals by customers to be reflected in their energy bill, before we can begin to see real change," he said.

The UK government has just announced that it will consult on energy storage later this year, as part of a package of measures intended to reduce regulatory 'red tape' in this area. As part of this consultation, it intends to consider options to clarify the legal status of storage and to explore whether additional changes to the regulator and commercial frameworks are needed in order to encourage the development of new storage facilities, according to a review of existing energy market regulation.

The NIC was set up last year to take a long-term look at the UK's infrastructure needs and provide independent advice to ministers and parliament. It has been asked to make initial recommendations on three particular areas ahead of the Budget: transport connectivity in the north of England, London transport and how to better balance electricity demand and supply.

Two thirds of the UK's existing power stations are due to close by 2030, and their replacements must be "largely decarbonised" if the UK is to meet its legally binding climate change goal of cutting CO2 emissions by 80% by 2050, according to the report. This will make balancing supply and demand increasingly difficult, as nuclear and renewable energy generation cannot be "ramped up and down" to balance the system on a second by second basis as is the case with today's fossil fuel plants.

The NIC anticipates a 'smart' energy system based on three innovations to tackle this issue: interconnection, storage and demand flexibility. Its report recommends that the UK government pursue more connections to cheap, green power supplies in the likes of Iceland and Norway; recommend legal and regulatory reforms in order to enable storage to "compete fairly with generation" by spring 2017; and explore ways of incentivising network owners to more actively manage their networks using storage solutions and other sources of flexibility.

The report also recommends that the government make full use of demand flexibility through improved regulation, improved awareness among the public of its benefits and piloting "new business models" on its own estate. Energy regulator Ofgem should look for ways to make participation easier by reviewing the existing regulations and commercial arrangements in this area by spring 2017; while the government should reform its capacity market auction process to make it easier for those offering demand flexibility to compete.

The NIC has also recommended more independence for National Grid in its role as system operator, to improve competition and ensure that it is able to "keep pace" with the network it oversees. This will require more active management of local electricity networks, and a more "strategic" approach to system upgrades, it said. Although the creation of an "entirely independent" system operator should not be treated as an immediate priority, this should be "kept under review", it said in its report.

Labour peer Lord Adonis, who is chairing the NIC on an interim basis until it is placed on statutory footing, said that the UK was "uniquely placed" to benefit from innovative 'smart' energy technology.

"The UK can lead the world in harnessing these innovations, bringing jobs and investment into the country and cutting bills for consumers," he said. "We do not call for new subsidies or significant public spending, but rather for a level playing field through fairer regulation and a better managed network to allow these exciting new technologies to compete."

"Our existing power stations are closing down and their replacements will be radically different as we decarbonise supply to reduce emissions. This represents an enormous challenge, but it also leaves the UK uniquely placed to benefit," he said.